Apple also announced a 7-for-1 stock split, and an increase in
its buyback program and dividend.

On the earnings call, CEO Tim Cook explained the buyback by
saying that he thinks Apple is massively undervalued. He believes
it has a bright future ahead and that the share repurchases are a
sign of the board's faith in Apple's future.

He also said the company was splitting the stock to "make it more
accessible to a larger number of shareholders." That sounds as if
Cook wants the share price to be more affordable for average
mom-and-pop investors.

Right now, the shares are about $524, which puts them out of
range for most people.

So, now that we've gotten the hard numbers out of the way, let's
talk about the most interesting things from this report and the
earnings call.

The iPhone was way ahead of expectations. Cook said each category
of the iPhone outsold the previous year in that category. In
other words, the 5S outsold last year's 5, the 5C outsold last
year's 4S, and the 4S outsold the 4 from last year.

Cook didn't get into product mix, but it seems as if the iPhone
4S was the real star for Apple. The average selling price of the
iPhone was down $41 sequentially, the biggest-ever drop in the
company's history. On the call, Cook said the 4S was selling well
in greater China.

Cook ripped through a bunch of numbers regarding the iPhone
business around the world.

Through the first half of fiscal 2014, Cook said, iPhone sales in
Brazil were up 61%, in Russia up 97%, in Turkey up 56%, in India
up 55%, and in Vietnam they were up 262%. Cook pointed out that
these are not "historic strongholds" for Apple.

He said Apple had record iPhone sales to the BRICs (Brazil,
Russia, India, and China) for the quarter.

Digging into greater China, Cook said Apple had record revenue
over $9.8 billion in the region. He said iPhone sales were up 28%
in the area. And he said that 85% of the people who bought iPhone
4Ss were new to the iPhone. Of the people who bought the 4S or
the 5C in China, over 60% were coming from Android.

Cook was asked about upgrade policies in the U.S. and whether
they were hurting Apple. He said there was "some pressure" from
strict upgrade policies in the U.S. He said that those policies
are changing and could benefit Apple in the future.

But then Cook went another direction and said there are 1 billion
smartphones out there right now. Eventually, all mobile phones
will be smartphones. And he said the big opportunity for Apple
remains in winning new customers. His comments on Android users
in China suggest there is also an opportunity to take Android
users.

Analysts had been saying that the future of the iPhone was all
about upgrades. Growth from new customers would be nil. Cook's
comments dispute their theory. He clearly thinks Apple can grab
new users.

However, it's the iPhone 4S that's driving the growth, which
suggests that Apple might want to lower prices on the iPhone in
the future.

Moving away from the iPhone, the iPad was the other standout in
the quarter — but not in a good way.

Apple's iPad business was down 16% on a year-over-year basis. On
the call, Cook said it was above Apple's internal expectations,
but he realizes that it missed most analysts' expectations. He
blamed part of the miss on analysts not understanding the
difference in channel inventory this year versus last year.

So, what does channel inventory mean? Apple sells products into
stores, but that doesn't mean they go into consumers' hands.
There was a difference between how many were in stores last year
versus this year. Cook attributed some of the decline to that.

It wasn't exactly a great answer, and analysts wanted to know
more.

So Cook gave a big-picture answer on the iPad. He said it's the
fastest-growing product in Apple's history. Apple has sold 210
million iPads since launch, which is almost double the iPhone at
the same point in its life. He also said that it's seven times
what the iPod was at this point in its life. He said customer
satisfaction was 98, which is unheard of. He said it's 95% of the
U.S. education market. It's in virtually all of the Fortune 500
companies. He says engagement is off the charts and well ahead of
Android.

And so, if you look at the iPad from that perspective, it's still
a strong, healthy business and it has a bright future, says Cook.
He still thinks the tablet will surpass the PC in the coming
years, and he thinks Apple is positioned to benefit.

It's not the most convincing answer, but really, the iPhone is
what matters for Apple. It should roll out a lower-cost model, a
higher-cost model, and a model with a giant screen this fall, to
take advantage of what is clearly very strong global demand.

Over last 6 months, 60 million new registered users.

2/3 of iPad were new to iPad, 1/2 of iPhone were new to iPhone.

I'd like to thank our talented employees. And our customers.

Update to capital return...

Guiding thoughts: Apple has created tremndous value for shareholders and that will always be our top priority and driving force. Keep investing in our supply chain. Investing in marketing and distribution. Expanding products and services into new categories. Investing through acquisitions. 24 companies in last 18 months.

We apprecite input from investors. Will seek investor input. Regular process allows us to evaluation return of capital. Allows us to be thoughtful.

iPad has over 95% of education tablet market

We payed 2.7 billion in dividends in February.

More detail on capital expansion...

Have done 46 billion of 60 billion, over 75% with 7 quarters left in program. Have returned cash to investors at a fast pace. Today, we take additional steps. Go to 130 billion. We are increasing size of share repurcahse from 60 to 90 billion. We think company is undervalued. $1 billion of cash for RSUs. $3.29 dividend for shareholders of May 2014. Understand importance of dividend increases. Planning for continued annual increases. Annual payments of $11 billion. All funded with domestic cash which was $18 billion. Will maintain domestic liquidity. To repatriate we would have cash tax consequences, which would not be in the best interset of shareholders. To execute new program, we intend to access debt markets. Domestic and international debt markets, similar to what we did last time.

Oppenheimer is leaving Apple, so Cook is just talking about how much he respects and likes him.

TIME FOR Q&A

TIM: Several things, not just App Store revenues. Look at App store would be different. I do believe we can monetize more than we are from services in existing and new areas. App Store was broad based. In China, growth was triple digits.

Huberty: ASPs... iPhone 5S surprise. Can you charge more in the future? Or strategy to maintain prices?

Bill Shope: Key drivers for June GM?

LUCA: March quarter good. Three reasons. Better volume. Better costs than anticipated. Some favorable mix of both products and services. As we go to Q3, loss of leverage which come from sequential decline in revenue. Less favorable mix. To offset that, partial offset, some cost improvements.

Shope: iPhone sales... North America sales?

TIM: We saw some pressure from stricter upgrade policies. This is US. IPhone strength broad based. US, UK, France, Germany, China Vietnam, had largest total sales of iPhones in the BRIC countries we've ever seen. We feel very good that the strength was broad based.

LUCA: When you look at $41 decline, about 1/2 was driven by fact that we have continued to do well in emerging markets with the 4S. LAt Am, Asia PAC, Eastern Europe. The rest was primarily as we move away from launch, we have lower capacity mix in our numbers.

Toni: How do you think of replacement cycles?

TIM: There's a lot there... To be clear on iPhone 4, sold single digit percentage of those, extremely minimal impact on quarter. In terms of general upgrade, some of the programs the carriers are running may increase the upgrade cycle, some areas where customers pay a bit more in the beginning have ability upgrade each year. Some that work that way, some that work the way you're leaning, and how these balance is difficult to conclude. Smart phone market only 1 billion or so and eventually will take over entire phone market. New users to iPhone in emerging markets. New to iPhone 4S in the 80 percentages in certain large Geos. Gives us a great comfort that we can continue to grow. May not attract to top phone, but in on entry iPhone, great phone on great value, gets them into ecosystem. Macro, see getting people into iPhone bigger than noise around carrier plans. Some help, some work the other way and unclear how those net. Important to know the bulk of things you're seeing in US are not occuring in other Geos in terms of upgrades. It's 30%.

Toni: [Missed question]

TIM: Most important thing we do is make great products, you can bet that's where our attention is. In terms of BOM pressure, you've seen it exists but we work down the cost curve. As I said before, we price at a level that is fair for value we're providing. Not stuck on certain price points. Values that are fair for what we're delivering.

Steve Milunovich: iPad, what up?

TIM: Good question, let's talk. When I back up, absolutely the fastest growing product in Apple's history. First that was instantly a hit in consumer, enterprise and eductation. Sold over 210 million since launch, more than we or anyone thought was possible. Twice as many IPhones in a comparable. Over 7X iPOds. Important to put that in perspective. Looking at it by market, in education we have 95% share. Focus is on penetration, getting more schools to buy. Clear to educators that student achievement is higher with iPad in school than without it. In enterprise, we're seeing 98% of FOrtune 500 using iPad, seeing according to Good technologies, 91% of activations are iPad, also astonishing number. Enterprises writing apps. This is great for that company and more productive. Just like in education what we have to do in enterprise is focus on penetration, has to been deeper.

As for Office on iPad ... if it was earlier, would have been better for MSFT, frankly. There's a lot of alternatives. I do see it as a key franchise in the enterprise, whole heartedly welcome to the App Store. Our customers responding in a good way. Helps us in enterprise.

Other things: Customer SAT is 98, almost nothign with that. Intention to buy nubmers are good, usage are off the chart, far and exceeding Android.

When I back up, I feel great. That doesn't mean every 90 days is going to be a number that everybody is thrilled with. Means trend looks very very good.

Thing that drives us are the next iPads if you, things we can do to make the product better. No shortage or work or ideas on that. I can't help but be excited. I think we did a good job of explaining the gap ... channel inventory, we should have been even clearer on.

Milunovich: No massive acquisitions like Google/FB, what up with that?

TIM: Key thing is to stay focused on things that we can do best and we can perform at a high level that customers come to expect. We feel comfortable expanding and wer'e doing that. Great things we're working on. Things I'm excited about. We care about every detail and it takes a bit longer to do that. As you know from following us, we didnt ship first MP3, nor the first smartphone or the first tablet. We shipped first successful version of those. Means more to get it right than get it first. YOu can see so many products that wanted to be first but not what customers want from Apple. We're on the prowl, I suppose you could say [for acquisitions.] Not in a race to spend the most, in a race to make the best products.

Shannon Cross: Competitive landscape for smartphones...

TIM: A lot of moving parts, a lot of acquisitions, a lot of people giving up to some degree, deciding to do other things. The part of the market we're interested in isthe market that want the best smartphones. We can do well in a number of geographies, some of the numbers we've experienced ... thru first hald Brazil up 61% Russia up 97% turkey up 56% india up 55% vietnam up 262%. These are not historic strong holds.

Shannon: China...

TIM: All time revenue record $9.8 billion in Greater China. iPhone up 28%, we gained share. Mac up 13%, far outpacing IDC of negative 8%. Look at iTunes software and services, in triple digits. Look at iPad, look at demand, grew by 6%, compares to IDC forecast of a flat tablet market. Did well in every single area in China. People that bought iPhone 4S, 85% were first time. iPhone 5C 65% first time buyers, also heavily Android switchers. 62% switched from Android. 60% of 5C switched from Android. We're looking at this data and continue to triple Apple retail over next two years. 40,000 points of sales. That's a low number considering folks in China.

Gene Munster: Apple TV...

TIM: Not a hobby because ... Sales over $1 billion from content and hardware, so doesn't feel right to call it a hobby. From investment, better and better. We have HBO GO and you have to authenticate to use it. Amazon got some older content from HBO... I haven't had a chance to evaluate, don't a point of view. If I look at content on Apple TV favorable to the Amazon box. PRetty large install base, feeling good about that business and where it can go.